Metal-chelating peptides represent an alternative for overcoming iron deficiencies, a common nutritional disease affecting populations worldwide. This study explored the iron-chelating activity of California red worm hydrolysates (WH) and its fractions. WH was obtained by hydrolysis with Alcalase 2.4 L and fractionated using a ceramic membrane with molecular weight cutoff 3 kDa. Both the complete hydrolysate and its fractions were assessed for their in-vitro iron-chelating activity and their ability to improve iron bioavailability through ferritin formation by differentiated Caco-2 cells assay. Finally, peptides in the fraction with the highest activity were sequenced by LC-MS/MS analysis and molecular docking was performed to elucidate the chelation mechanism. The findings reveal that the smallest fraction (F<3kDa) exhibits the most potent iron-chelating activity with IC50 value like carnosine. Moreover, in intestinal-like differentiated Caco-2 cells, this fraction enhances iron bioavailability in a remarkable 77.9% in comparison to FeSO4 alone. On the other hand, the peptide SLLDDRLDEK identified in this fraction presents the lowest value of affinity energy (-1.5 Kcal/mol) and exhibits specific interactions with iron, allowing iron ions to be trapped within its structure. These results underscore the potential of F<3kDa fractions from WH as promising candidates for increasing iron bioavailability and addressing iron deficiency and related health concerns.